Israel's Elbit Systems will transfer thermal imaging system technology to an Indian factory that will supply artillery, armored and paramilitary forces. (Agence France-Presse)

NEW DELHI — A new Indian procurement policy that gives priority to state-owned defense companies has prompted Elbit Systems and Thales to forge ties with the Ordnance Factory Board (OFB), which administers 41 weapon factories, and promise to transfer high technology in return for firm orders, an OFB source said.

Under Defence Ministry changes to procurement policy last year, state-owned companies get first priority in weapon procurement, and overseas defense companies will be the last option.

The overseas companies will capitalize on firm orders with OFB in return for transferring technology, the OFB source said.

No executive from Thales or Elbit was available for comment.

Elbit of Israel has agreed to transfer technology for the production of thermal imaging systems to the state-owned electro-optics factory in Deharun, which will supply Indian artillery, armored and paramilitary forces. This deal alone can assure business worth more than $150 million to Elbit with repeat orders expected, the OFB source said.

Thales, a major French electronics group, has agreed to transfer technology for night-vision systems to a Dehradun-based OFB factory that was awarded a contract worth $150 million to supply the devices.

The demand for night-vision devices and optic systems is worth more than $400 million per year.

This year, BAE Systems offered to help OFB with its $2.5 billion modernization of the 41 aging ordnance factories. A BAE executive said its plan, submitted to OFB, promises to increase productivity and reduce manufacturing waste.

When completed, the OFB modernization could create stiff competition for local private-sector companies, forcing them to review their strategy in tapping a weapons market, analysts here said.

Russia is the main supplier of technology to the state-owned ordnance factories, followed by Israel and South Africa.

Other Projects

Among OFB’s major plans are upgrading howitzers bought from Bofors in 1987 from 39 caliber to 45. Winter trials of the prototype were successful, and if summer trials succeed, production would begin at a state-owned factory in Jabalpur, the OFB official said.

The Army has ordered 114 of the upgraded guns, and more orders are likely to follow.

Planned new projects include manufacturing new-generation assault rifles and carbines; 155mm cannons and mounted gun systems; rockets for Russian Smerch multibarrel rocket launchers; rockets for Russian-made Grad launchers; a successor to the L-70 air defense gun; a very-short-range air defense missile; and upgraded ammunition for 84mm rocket launchers, the OFB official said.

OFB is increasing production capacity for Russian T-90 and T-72 tank engines operated by the Indian Army.

In addition, the Nalanda factory will make a variety of ammunition for bi-modular charges, while the Korwa factory would produce carbines, the official said.

Other OFB projects include integrating light field guns on infantry fighting vehicles and development of a stabilized remote-control weapon system.

However, OFB sales have stagnated. Total sales figures for the 2012-13 financial year were $2.07 billion, $2.06 billion for 2011-12 and $1.9 billion for 2010-11.

“Low productivity and obsolete machinery in several of the OFB plants has been responsible for the stagnated sales of OFB,” said Mahindra Singh, a retired Indian Army major general. ■